Friday, January 02, 2015

Doing Nothing: A science based policy prescription for climate mitigation

In a recent Corn and Soybean Digest piece, a survey among farmers' beliefs about climate change was discussed (see http://m.cornandsoybeandigest.com/blog/why-climate-deniers ). The fact that many farmers in the survey rejected the notion of human impacts on climate change was lamented. 

I've written before about  the current scientific consensus on climate change. Also, given this consensus, how difficult it is to actually price carbon (for tax purposes) or to define an optimal quantity of carbon emissions (for a tradable permit policy). There have fairly recently (in the last couple of years) been some really interesting EconTalk podcasts related to these issues worth sharing:

Judith Curry on Climate Change

Judith Curry of the Georgia Institute of Technology and blogger at Climate Etc. talks with EconTalk host Russ Roberts about climate change. Curry argues that climate change is a "wicked problem" with a great deal of uncertainty surrounding the expected damage as well as the political and technical challenges of dealing with the phenomenon. She emphasizes the complexity of the climate and how much of the basic science remains incomplete. The conversation closes with a discussion of how concerned citizens can improve their understanding of climate change and climate change policy.

Pindyck on Climate Change 

Robert Pindyck of MIT talks with EconTalk host Russ Roberts about the challenges of global warming for policy makers. Pindyck argues that while there is little doubt about the existence of human-caused global warming via carbon emissions, there is a great deal of doubt about the size of the effects on temperature and the size of the economic impact of warmer climate. This leads to a dilemma for policy-makers over how to proceed. Pindyck suggests that a tax or some form of carbon emission reduction is a good idea as a precautionary measure, despite the uncertainty.

The general takeaway is that while there is definitely a consensus regarding the fact that human related CO2 emissions contribute to climate change in many ways, it is difficult to quantify this impact over time.

As stated in Froeb et al's Managerial Economics text, 'all investment decisions involve a tradeoff between current sacrifice and future gain.' The metric that allows us to evaluate this tradeoff is the discount rate, and as Pindyck discusses, the fundamental (knowledge) problem of climate change is that there is no consensus about how to determine the relevant discount rate. And as I have stated before, there is no consensus in relation to very specific scientific forecasts related to future damages from climate change. Without being able to accurately predict future damages, or discount them to evaluate them in today's dollars, it's hard to value future climate related gains that today's sacrifices (driving less or smaller or hybrid cars, switching from coal fired electricity to natural gas or solar, changing our diet or other lifestyle changes, lost income or returns from capital investment etc.) will buy. In other words it's hard to know to what extent it makes any sense to do anything about climate change.

But, because of what I have referred to before as the invisible green hand, doing 'nothing' about climate change from a policy perspective (i.e. carbon taxes, permits, regulations) doesn't imply that we as a society are 'doing nothing' about climate change. Self interested behavior in the livestock sector has led to technological advancements (adoption of pharmaceutical, nutritional, and other technologies) that have drastically lowered the carbon footprint of beef and milk production. Biotechnology adoption in crop production has led to reductions in carbon emissions that dwarf what has been made possible with other technologies like hybrid cars (see my post Hybrid Corn or Hybrid Cars). 

So it doesn't really matter what a survey says about farmers' beliefs about the science of climate change. The market has coordinated their behavior in such a way that today's farmer is on the cutting edge of adopting green technologies that mitigate the potential impacts of climate change, regardless of our inability to quantify the relevant trade offs in a policy relevant context.  The best thing we can probably do in terms of policy is promote resilient markets that are able to respond to ever changing resource constraints in the face of climate uncertainty. An environment conducive to technology adoption, research, and investment. 

Unfortunately, many of the same people so vocal about adopting policies based on the so called science of climate change (taxes, permits, dietary restrictions, regulations etc.) are also many of the same people that would restrict us (via GMO labeling laws, bans, strict limitations on hormone and antibiotic use, demonization of LFTB via derogatory terms like 'pink slime' etc.) from doing the very things that would have the greatest positive impact on our climate and environment. 


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